Canadian KPMG And Two Of Its Partners Settle SEC's Auditor Independence Charges

The Securities and Exchange Commission today announced a settled enforcement action against KPMG LLP (KPMG Canada), a Canadian audit firm, and two of its partners, Gary Bentham, the audit engagement partner, and John Gordon, the concurring and SEC reviewing partner. As described in the SEC’s order, KPMG Canada, Bentham and Gordon lacked independence when they audited the 1999 through 2002 financial statements of Southwestern Water Exploration Co. (Southwestern), a now-bankrupt Colorado corporation. KPMG Canada provided bookkeeping services to Southwestern and then audited its own work. Specifically, after KPMG Canada prepared certain of Southwestern’s basic accounting records and financial statements, it issued purportedly independent audit reports on those financial statements. KPMG Canada’s audit reports were included in Southwestern’s annual reports that were filed with the Commission.

The SEC found that KPMG Canada, Bentham and Gordon engaged in “improper professional conduct” within the meaning of Rule 102(e) of the SEC’s Rules of Practice by virtue of their violations of the auditor independence requirements imposed by the Commission’s rules and guidance and by generally accepted auditing standards in the United States.

The SEC’s order censures KPMG Canada. KPMG Canada, without admitting or denying the Commission’s findings, consented to the issuance of the order. KPMG Canada also agreed to a number of remedial undertakings, including adopting and implementing new auditor independence policies and procedures and paying $73,682 which represents its fees from the audit and bookkeeping services it performed for Southwestern plus prejudgment interest. In determining to accept KPMG Canada’s offer of settlement, the SEC considered remedial acts promptly undertaken by KPMG Canada, cooperation afforded the SEC staff, and KPMG Canada’s undertakings.

Bentham and Gordon, without admitting or denying the Commission’s findings, also agreed to settle the matter. The order denies Bentham the privilege of appearing or practicing before the Commission as an accountant, with a right to apply to resume appearing or practicing before the Commission in two years. Additionally, the order denies Gordon the privilege of appearing or practicing before the Commission as an accountant for nine months.

Contact:
Antonia Chion, Associate Director, Division of Enforcement, (202) 551-4842

  Additional materials: Administrative Proceeding Release No. 34-51946